Choosing between an LLC and an S-Corp is one of the decisions that can save you—or cost you—the most money as a business owner in the United States. Confusion is common because they sound similar, but they're not the same: one is a legal structure, and the other is a choice of how you pay taxes. The right answer depends primarily on how much your business earns. In this guide, I explain in clear Spanish what each one is, how they are taxed, provide an example with real numbers for $60,000 and $120,000 in profit, and determine when it's advisable to switch to an S-Corp in 2026.
LLC vs S-Corp: They are not the same
An LLC (Limited Liability Company) is a legal structure: it protects your personal assets and defines how your business is organized. An S-Corp is not a structure, but a tax choice with the IRS: your LLC (or corporation) can choose to be taxed as an S-Corp. In other words, you don't choose "one or the other": you first form your LLC and, if it's advantageous, you then choose to be taxed as an S-Corp. Both require an EIN ( Employee Identification Number ).
How is an LLC taxed?
By default, a sole proprietor LLC pays taxes on a pass-through basis: profits are passed through to your personal income tax return. The key is the self-employment tax (Social Security and Medicare), which in 2026 is 15.3% (12.4% for Social Security up to $184,500 of base pay and 2.9% for Medicare with no cap). This 15.3% is applied to almost all of your net income, in addition to federal income tax.
How the S-Corp election works
By filing as an S-Corp, you're essentially split in two: you're both the employee and the owner. You must pay yourself a reasonable salary (subject to a 15.3% payroll tax), and you treat the rest of your earnings as distributions , which aren't subject to self-employment tax. That's where the savings come in. The IRS has a strict rule: your salary must be realistic for the type of work you do; paying yourself $0 to avoid taxes is a red flag.
Example with numbers: $60,000 and $120,000 profit
These are approximate examples to illustrate the idea (they are not an official calculation):
- Earning $120,000 as an LLC: the self-employment tax is around $16,900 (15.3% on 92.35% of the profit).
- Earnings of $120,000 as an S-Corp: If you pay yourself a salary of $60,000, payroll taxes are around $9,180and the other $60,000 as distribution does not pay that 15.3%. Potential savings: around $7,700 per year.
- Earning $60,000 as an LLC: the self-employment tax is around $8,500.
- Earnings of $60,000 as an S-Corp: The savings drop to about $2,000–$2,500, which is almost eaten up by payroll and accounting costs.
When is an S-Corp advantageous?
As a general rule, choosing an S-Corp starts to be worthwhile when your net income consistently exceeds $60,000 to $80,000 per year . Below that, the additional costs typically negate the savings. Every situation is different, so it's advisable to run the numbers with a professional before deciding. Also, check out our tax calendar guide for your business.
Costs and disadvantages of the S-Corp
- Mandatory payroll: You must process payroll for your salary, with its monthly cost.
- More accounting: requires self-declaration (Form 1120-S) and greater control.
- Reasonable salary: If the IRS considers it low, it can recalculate and fine you.
Before choosing, check how much it costs to operate your business in our article on how much it costs to open a business in the USA and confirm the rules on the official IRS website in Spanish.
Conclusion
Neither an LLC nor an S-Corp is inherently "better": the answer depends on your numbers. An LLC is simple and sufficient when you're starting out; an S-Corp shines when your earnings grow and the savings on self-employment taxes justify the extra payroll. The key is to review your situation every year.
This content is for informational purposes only and does not constitute tax advice. Every situation is different.
Want to know which structure is right for you based on your actual financial situation? At Jimenez Consulting Tax Services , we analyze your case and help you choose between an LLC and an S-Corp so you only pay what's fair. Schedule your consultation and make an informed decision.
